News

Access to finance is one of the main impediments to the development of small and medium-sized firms in the Republic of Moldova. Most domestic entrepreneurs, who need money to sustain their current business or invest in business development and growth, turn to bank credit as a source of finance. Things are good in theory. In practice, however, SMEs encounter many obstacles in the process of taking out loans. A lifeline for entrepreneurs who fail to convince financial institutions of business viability is State Credit Guarantee Fund (FGC)managed by the Organisation for the Development of Small and Medium-sized Enterprises (ODSME).

For businesses that do not have enough pledge and can miss out on the chance to get a bank loan, Credit Guarantee Fund (FGC) has the possibility to guarantee up to 70 per cent of the amount of credit. The scheme for granting financial guarantees is as follows: the entrepreneur wishing to benefit from guarantees provided by the FGC will have to go to one of the 7 partner banks to negotiate the terms of the loan procedure, after which ODIMM provides a financial guarantee for the negotiated difference in pledge. The financial guarantee shall be provided for a maximum of 5 years.

Both in the Republic of Moldova and elsewhere, as international practice demonstrates, credit guarantees also entail certain costs. The ODSME has simplified the procedure for applying for the guarantee by giving SMEs faster access to finance, reducing guarantee costs from 2 % to 0.5 % annually.

Vlad Mantaluța, Head of the Credit Guarantee Fund, claims that the economic operator bears valuation, notarial, insurance, etc. costs for the conclusion of a pledge/mortgage contract, which are often much higher than the cost of the financial guarantee. Therefore, if we substitute this expenditure, the cost of the guarantee provided by ODIMM does not increase the financing, and this is an additional argument for the representatives of the SMUs to opt specifically for this guarantee provided by the State.

Financial guarantees for exporting companies have also been proposed since 2013. Since 2016, the maximum amount has been RON 5 million, with a coverage rate of 50 % of the loan amount. Over the years, this mechanism has demonstrated its functionality and viability, and entrepreneurs have had the opportunity to convince themselves that it is an effective tool for business development.

Since the beginning of this year, ODIMM through the FGC has granted 42 financial guarantees amounting to RON 25 million, which have attracted more than RON 106 million of investments. The analysis of the impact of the guarantees shows that each leu granted in the form of a guarantee allows investments amounting to RON 5 to be made.

Thus, to date, ODSME-backed loans have helped to improve production capacities in agriculture, the food industry, the woodworking industry, services, construction, etc. In particular, the beneficial impact on job creation, the increase in turnover and the increase in contributions to the state budget should be noted.